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Global Production Sharing, Trade Patterns and Determinants of Trade Flows

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  • Prema-chandra Athukorala
  • Jayant Menon

Abstract

This paper examines the extent and pattern of global production sharing, focusing on East Asia, and probes its implications for the analysis of the determinants of trade flows. Reflecting rapid global spread of production sharing, trade in parts and components has increased at a much faster rate than total manufacturing trade in recent years and East Asia (both including and excluding Japan) is unique in the world for its heavy reliance on this new form of international exchange. The econometric analysis reveals that parts and components are highly insensitive to changes in relative prices and; as a result, the impact on aggregate trade flows of relative price changes diminishes as its share increases. This implies that exchange rate policy may be less effective in balance of payments adjustment, in countries where component trade is high and growing.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2010/wp_econ_2010_06.pdf
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Bibliographic Info

Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2010-06.

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Length: 47 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:pas:papers:2010-06

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Related research

Keywords: Global production sharing; product fragmentation; determinants of trade flows; exchange rate policy;

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References

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  1. Sven W. Arndt, 2008. "Production Networks And The Open Macroeconomy," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(03), pages 509-521.
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Cited by:
  1. Prema-chandra Athukorala & Nobuaki Yamashita, 2009. "Global Production Sharing and Sino-US Trade Relations," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(3), pages 39-56.
  2. Alessandrini, Michele & Fattouh, Bassam & Ferrarini, Benno & Scaramozzino, Pasquale, 2011. "Tariff liberalization and trade specialization: Lessons from India," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 499-513.
  3. Fukunari Kimura & Ayako Obashi, 2011. "Production Networks in East Asia : What We Know So Far," Trade Working Papers 23216, East Asian Bureau of Economic Research.
  4. Prema-chandra Athukorala, 2009. "The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?," The World Economy, Wiley Blackwell, vol. 32(2), pages 234-266, 02.
  5. Jayant Menon, 2013. "Can FTAs Support the Growth or Spread of International Production Networks in Asia?," Departmental Working Papers 2013-06, The Australian National University, Arndt-Corden Department of Economics.
  6. Park, Yung Chul & Song, Chi-Young, 2011. "Prospects for Monetary Cooperation in East Asia," ADBI Working Papers 314, Asian Development Bank Institute.

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